MAcro Cue Card
By Sally Dickson, Austin, TX., skdickson@yahoo.com
Instructions for the Macro Cue Card
by Sally Dickson
I. Overview.
The purpose of the Macro Cue Card is to help students answer Advanced Placement Free Response
Questions correctly, not incorrectly. If students practice answering correctly, they are more likely to
do so on the AP FRQ Exam. The Cue Card includes relevant models and concepts used on past
Macro FRQ’s and included in the 2005 Course Description for AP Macroeconomics.
II. Objectives.
Students will use the Macro Cue Card to confirm correct use of models and concepts as they answer
FRQ’s. They will practice writing correct FRQ’s. In the end, having used the Cue Card with some
regularity, they will have memory of the Cue Card to which they can refer mentally during the AP FRQ
Exam. Cue Cards are not permitted at AP testing.
III.
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Materials and Resources.
A copy of the “Macro Cue Card” for each student
A copy of the “Alphabetical Meaning of Symbols”
Past AP FRQ’s Go to the following website for FRQ’s and rubrics from 1999-2004.
http://www.apcentral.collegeboard.com/members/article/1,3046,152-171-0-2084,00.html
Practice FRQ’s from Advanced Placement Economics, 3rd Edition, by John S. Morton and Rae
Jean Goodman, National Council on Economic Education, 2003. Go to www.ncee.net to order
this book and the Teacher’s Guide of supplemental explanations, exercises, and tests
FRQ’s written by Sally Dickson that are included with the Macro Cue Card
Questions in college textbooks and study guides
IV. Classroom time needed.
o The Cue Card can be used for practice FRQ’s and for classroom FRQ exams up until two or three
weeks before the course ends. At that point, they should have practiced writing correctly, so they
should be ready to be weaned from their Cue Cards.
o Students generally benefit if they do one practice and one exam per week. With large class loads
or short class time, it could be reduced to once per large unit.
V. Suggested Steps for Use. (Modify to fit your teaching style and the needs of your students.)
1. Give each student a copy of the “Cue Card” and “Meaning of Symbols” that includes those
portions that they have studied so far. For example, if the class has studied “Scarcity, Choice, and
Trade” and “Supply, Demand, and Equilibrium”, give them a Cue Card that includes only those
topics. An alternate possibility is to give the entire Cue Card at once that has been laminated for
use throughout the course.
2. After studying a broad topic such as “Aggregate Supply, Aggregate Demand, and Equilibrium”,
two class days before the test, use about 15 minutes to model the process of answering an FRQ
finding the needed information on the Cue Card with class input.
3. For homework that night, give each student a similar question to answer on his/her own using the
Cue Card. Remind them to use and study the card to that they can find needed information on it
during the FRQ test. Answers must be given with correctly labeled graphs, analysis using script,
and written explanation, where appropriate.
Alternatively, divide the class into small groups and assign a question for each group to
answer. Give about 5 minutes at the end of class for them to discuss their question. That
night they each answer their group question as homework, and at the first of class the group
meets for about 5 minutes to agree on an answer. The teacher can roll dice to determine
which group puts their response on the board (graph and analysis using script) and explains it
to the class. The teacher says, “I see one (or more) mistakes. Does anyone see one?” Be
sure that all labels and explanations are correct.
Sally Dickson, Austin, TX
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4. The next day in class, using about 10 minutes, go over the grading rubric for the homework and
then have them grade someone else’s paper using the rubric. After grading, the two students
should exchange comments with each other about mistakes. The teacher then briefly responds to
misunderstandings and common errors and suggests that study groups share problems. No
grade is taken.
5. On test day, the teacher allows students to use their Cue Cards to answer a similar, but different,
FRQ question. Do not allow Cue Card use on the multiple-choice portion. Grades for FRQ’s and
multiple-choice questions should be separate, just as they are on the AP Exam.
6. Create a rubric for grading the FRQ. Grading with a rubric is faster, more nearly fair, and more
instructive for students.
7. When you return the graded FRQ’s, model the answer of the question using the Cue Card and the
rubric. Make a transparency of the best student answer and read it to the class so that they know
what an excellent student response looks like. This takes about 10 minutes.
8. Remind them that you expect everyone to make at least 90 on these FRQ’s, so they must come in
after school for tutoring and to retake a similar question using the Cue Card if their grade is below
90. You could average the retake grade, replace the original grade, or count it as extra credit.
VI. Economic Analysis, Easy as 1, 2, 3
A method for analyzing change used on the Cue Card that you will need to teach.
(Assume one change at a time at first.)
Price
Supply1
1. Before change – Start analysis at Point
“A” where P1 and Q1 meet.
P2
B
2. Change – Kids like motor scooters
A
better than bicycles. (Notice the graph is
P1
of Scooters, not Bicycles.) (Δ=change in)
D2
o Is it a change in the price of the
good/service or resource? Yes or No
Demand1
(If “yes”, there is no shift.)
Q1 Q2
Quantity
o Does the change affect supply or
Motor Scooters
demand first?
o Does supply or demand increase or
Kids like electric scooters better than
decrease? (shifts right)
bicycles, so more (quantity) scooters are
3. After change – The price rises for
bought (demanded) at every price, causing
scooters until the quantity supplied and
the demand curve to shift to the right, D2.
demanded are equal again at Point “B”
where P2 and Q2 meet.
VII . Updating the Cue Card.
o Since the College Board revises the Course Description for Macroeconomics each year at
www.apcentral.collegeboard.com , teachers may need to update the Cue Card.
o E-mail Sally Dickson, the author, at skdickson@yahoo.com or call 512-383-8289 if you would like
to get the Word document. You are welcome to use the Cue Card with your classes, share it with
other teachers, and change it to meet your needs.
o If you make changes that might benefit others or use it in a manner different from that described
above that worked, please share your ideas!
VIII.
Bibliography.
 Economics: Microeconomics, Macroeconomics Course Description for 2005-2006, The
College Board Advanced Placement Program, 2004.
 Mankiw, N. Gregory. Principles of Economics, 3/e, Thomson South-western, 2004.
 McConnell, Campbell R. and Brue, Stanley L. Economics, Principles, Problems, and
Policies, 16/e, McGraw-Hill Irwin, 2005.
Sally Dickson, Austin, TX
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

Morton, John S. and Goodman, Rae Jean. Advanced Placement Economics, 3/e, National
Council on Economic Education, 2003.
Pride, Peggy. Presentation at the annual conference of the National Council for Economic
Education, Little Rock, Arkansas, 2004.
IX. FRQ Index by Topic (Textbooks and study guides have questions on all topics.)
Past AP FRQ’s
by College Board and ETS
Topic
www.apcentral.collegeboard.com
Unit I—Basics
Scarcity, choice, opportunity cost
Production possibilities curve
Comparative advantage, specialization, and
exchange
Demand, Supply, Market Equilibrium
Macro issues: business cycle, unemployment,
inflation, growth
Unit II—Measurement of Economic
Performance
National Income Accounts, Circular Flow, GDP,
Real vs. nominal GDP
Inflation, price indices, nominal vs. real, costs of
inflation
Unemployment, measurement, types, natural
rate of unemployment
Unit III—National Income & Price
Determination
Aggregate Demand, determinants, multiplier and
crowding-out effects
Aggregate Supply, short-run and long-run
analysis, sticky vs. flexible wages and prices,
determinants
Macro equilibrium, real output and price level,
short and long run, actual vs. full employment
output, economic fluctuations
Unit IV—Financial Sector
Money, banking, financial markets
Definition of financial assets: money, stocks,
bonds
Time value of money (present and future value)
Measures of money supply, banks and creation
of money
Money market, money supply, money demand
Loanable funds market
Central bank monetary policy to control money
supply, quantity theory of money, real vs.
nominal interest rates
Unit V—Inflation, Unemployment,
Stabilization Policies
Fiscal and Monetary Policies—demand-side
Sally Dickson, Austin, TX
8-12%
2005B #2, 2001A #1
2003A #3
12-16%
10-15%
2005A #2, 2005B #3, 2004A #1, 2003A #1,
2001A #1
2004A #1, 2001A #1
2005A #1, 2005B #1, 2004A #1, 2003A #1,
2002A #1, 2001A #1
15-20%
2004A #3
2004A #3, 2001A #3
2005A #1, 2005B #1
2005A #2, 2005B #3, 2004A #2
2005A #1, 2005B #1, 2004A #1, 2004A #2
20-30%
2005B #3, 2005B #1, 2003A #1, 2002A #1,
4
effects, supply-side effects, policy mix,
government debt and deficits
Inflation and Unemployment, types of inflation,
Phillips curve (LR vs. SR), role of expectations
Unit VI—Economic Growth and Productivity
Investment in human and physical capital,
research and development, technological
progress, growth policy
Unit VII—Open Economy: International
Trade and Finance
Balance of payments (balance of trade, current
acct., capital acct.)
Foreign exchange market, demand for and
supply of foreign exchange, exchange rate
determination, currency appreciation and value
Net exports and capital flows
Links to financial and goods markets
2001A#1
2005A #3, 2005B, #1, 2003A #2
5-10%
2005A #2, 2005B #2, 2002A, #2, 2001A #!
10-15%
2005A #2, 2005B #3, 2004A #2, 2002A #3,
2001A #2
2004A #2, 2002A #3, 2001A #2
AP FRQ’s usually connect several concepts into one question.
IF YOU COPY AND PASTE THE CUE CARD, YOU MAY NEED TO GO TO
“PASTE SPECIAL”, SWITCH TO “WORD DOCUMENT” INSTEAD OF “HTML”,
AND PASTE ONE PAGE AT A TIME.
Sally Dickson, Austin, TX
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Alphabetical Meaning of Symbols
Symbol
$US
%∆PL
%U
∆
↑
→ or ⇒
↓
£
¥
€
AD
AE
AS
C
Ca
D
D$
DB
DD
DI
DIg
DLF
DM or MD
Dt
E or ER
FE
FEX
G
Meaning
US Dollar in foreign exchange
Inflation Rate
Unemployment Rate
Delta = Change in
Increases
Causes
Decreases
British Pound Sterling
Japanese Yen
Euro Dollar
Aggregate Demand
Aggregate Expenditures
Aggregate Supply
Consumption
Consumption after taxes
Demand
Demand for $’s in FEX
Demand for Bonds
Demand Deposits
Disposable Income
Demand for Investment
Demand for Loanable Funds
Demand for Money
Transaction Demand for Money
Excess Reserves of Banks
Full Employment Quantity
Foreign Exchange Markets
Government Spending
Sally Dickson, Austin, TX
Symbol
GDPN
GDPR
i
ID
Ig
In
LRAS
LRPC
M
MPC
MPS
P
PC
PL
Ppc
Ppf
Q
QF
r
R or RR
S
S
S$
SB
SLF
SM or MS
T
U
X
Xn
Y
YF
Y*
Meaning
Nominal Gross Domestic Product
Real Gross Domestic Product
Nominal Interest Rates
Demand for Investment
Gross Investment
Net Investment (Ig – depreciation)
Long Run Aggregate Supply
Long Run Phillips Curve
Imports
Marginal Propensity to Consume
Marginal Propensity to Save
Price
Phillips Curve
Price Level
Production Possibilities Curve
Production Possibilities Frontier
Quantity
Quantity at Full Employment
Real Interest Rates
Required Reserves of Banks
Savings
Supply
Supply of $’s in FEX
Supply of Bonds
Supply of Loanable Funds
Supply of Money
Taxes
Unemployment
Exports
Net Exports (X-M)
Income/Output/Employment/GDPR
GDPR at Full Employment
GDPR potential at Full
Employment
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Macro Free Response Question CUE CARD--2005
Analysis of AS and AD
PART I:
Fig. 1 To Start:
(1) Look at unemployment first.
(2) Look at inflation rate if situation
starts at full employment
PL
LRAS AS
B
A
GDPR
Unemployment
Inflation
GDP Growth
Good
Worry
Bad
5.5% or less
6% to 8%
8.5% or more
1% to 4%
5% to 8%
9% or more
2.5% to 5+%
1% to 2%
.5% or less
Δ AS = f(Δ per unit costs)
Δ Resource prices or
 quantities (inputs)
 land – rent
 labor – wages
 capital – interest
 entrepreneurship profits
Δ Productivity, technology
Δ Legal/ institutional
 business taxes
 subsidies
 regulations
AD1
P2
P1
Examples
for USA
AD2
Q1 QF Q2 Q
Economic Analysis
1. A--Before change—Initial
equilibrium at P1, Q1
2. Δ--Change: C↑ → AD↑ (example)
3. B = After change—New
equilibrium at P2, Q2
Δ AD =f(Δ spending)
ΔC--Δ Consumer spending
 wealth,
 taxes.
 expectations,
 indebtedness
ΔIg –Δ Investment spend.
 interest rates,
 profit expecations
 bus. taxes,
 technology
ΔG—Δ Government spend.
purchases
ΔXn--Δ Net Export spend.
 n’tl income abroad
 exchange rates
Did the change shift both AD and AS at once? If both curves shift at
once, then there is change on one axis but change on the other axis is
indeterminant because magnitudes of change are unknown. Business
taxes, interest rates, exchange rates, and wages can affect both.
PART II: FISCAL POLICY--by CONGRESS
If problem is Unemloyment ↑
Then Congress uses . . . .
Expansionary
Tools
Taxes=T
Decrease
Subsidies
Increase
Spending=G Increase
Inflation ↑
Contractionary
Increase
Decrease
Decrease
Fig. 3 Money Market
Domestic Currency
i
SM
i2
Fig. 6 Investment
Demand
r
r2 B
A
r1
i1
A
Money QM
DM2
DM1
Q
Fiscal Policy effects may be weakened by . . .
 Crowding Out Effect – If G↑ deficit spending↑→
DLF↑→r↑→Ig may slow, especially at full employment
since profit expectations may not be rising →AD↑ less.
 Net Export Effect – If G↑ deficit spending→DLF↑→
domestic r↑ → foreign and domestic investors seek
higher return on US bonds and other assets→in FEX
D$↑, S$↓→Foreign Price per $↑ →$ appreciates→
exportsUS↓(expensive) and importsUS↑(cheaper) →Xn↓
some→AD↑ less.
Sally Dickson, Austin, TX
Fig. 4 Loanable Funds
r
SLF
r2
B
B
Q
Q1 Q2
GDPR(Output/Employ)
Ex.: Congress Uses Expansionary Fiscal Policy
Personal T↓→ DI↑xMPC → Ca↑ x mult→ AD↑ (Fig. 2)
→GDPR↑, PL↑
 Business T↓→profits↑→Ig↑ x mult.→AD↑ and Bus.
T↓→per unit costs↓→AS↑→GDPR↑, PL indeterminant
 G↑ x mult.→AD↑→GDPR↑, PL↑ (Fig.2)
If Govt. deficit spending↑→DM↑→i↑ and govt. borrow↑
by selling new bonds↑→ SB↑→PB↓ (Fig. 5) and DLF↑→r↑
(Fig. 4) →Ig↓ (Fig. 6), esp. at full-employment (Crowd-out)
If GDPN↑→Dt↑→Dm↑→i↑ (Fig. 3)

Interest rates: i-expected inflation rate = r
Spending Multiplier = 1/MPS or ΔGDPR/ΔAE
Fig. 2 – AS/AD
PL
LRAS
AD2
AS
AD1
P2
B
P1
A
FE = YF = LRAS = QF=YP
A
DLF2
r1
DLF1
Q1 Q2
Q
Loanable Funds
Fig. 5 Bond Market
P
SB1
SB2
A
P1
B
P2
DB
Q1 Q2 Q
New Treasury
Bonds
DI
Q2 Q1
Q
Investment
If PB↑, the r↓.
If the economy is in
a recession, fiscal
policy can cause
the DI to shift right
due to improved
expectations, so
crowding out is
unlikely.
7
PART III: MONETARY POLICY – by FEDERAL RESERVE’S FOMC
If Problem is Unemployment ↑
Inflation ↑
Then the Fed . . . ↓
↓
Expansionary Contractionary
Tools
OMO
Buys bonds
Sells bonds
Reserve
Decrease
Increase
Requirement
Discount % Decrease
Increase
Ex. of Linkages: Expansionary Monetary Policy
If the Fed buys bonds from the public . . .
Demand deposits↑→Excess Reserves (E)↑→ Loans↑
x money multiplier → Sm↑ → i (Fig. 7) →Ig↑ (Fig. 8)
b/c more investment projects are profitable at lower
interest rate→x mult.→AD↑→GDPR↑, PL↑,U↓ (Fig. 9)
Money Multiplier = 1/Reserve Requirement
Fig. 7 Money Market (Domestic)
i
SM1 SM2
A
i1
i2
B
i2
Fig. 8 Investment Demand
i
A
i1
B
Q1
Q2
Q
LRAS
AS
B
A
P1
ID
DM
Money
Fig. 9 AS / AD
PL
P2
Investment Q1 Q2
Q
AD2
AD1
Q 1 Q2
Real GDP
Q
Monetary Policy effects may be strengthened by . . .
 Net Export Effect – If the Fed buys bonds→ SM↑→i↓→foreign and domestic investors seek higher returns
on foreign bonds and other foreign assets→D$↓, S$↑→Foreign Price per $↓ →$ depreciates→ exportsUS↑
(cheaper) and importsUS↓ (more expensive) →Xn↑→AD↑ some more.
PART IV:
INTERNATIONAL TRADE. (Compare USA to ROW—Rest Of the World.)
Examples compare US $ to Japanese ¥
Output/Employment – If GDPUSA↑→incomeUSA↑
→M↑→Xn↓→D¥↓, S$↑→¥P/$↓→$ depreciates
Price Level – If PLUSA↑→M↑ (foreign goods
cheaper), X↓ (our goods expensive to ROW)→
Xn↓→D$↓,S$↑→¥ P/$↓→$ depreciates
Interest Rate – Ex: rUSA↑→Jap, & US investors buy
US bonds, assets↑→D$↑,S$↓→¥P/$↑→$ appreciate
(Fig.10)→XUS↓,→MUS↑→Xn↓→AD↓→GDPR↓,PL↓
Trade deficit or surplus – Ex: If Xn↓, then a trade
deficit gets worse or a trade surplus gets better.
Fig. 10 US real interest rates increase
¥P/$
S$2
$P/¥
P2
B
S$1
S¥1
P1
A
P2
B
S¥2
D$2
D¥1
A
P1
D$1
US Dollars
Q
¥P/$↑→$ appreciates
D¥2
Japanese Yen Q
$P/¥↓→¥ depreciates
PART V: LONG RUN. If Investment (Ig)↑, resources↑, productivity↑, research & development↑, or
technology↑, it causes Economic Growth. (The opposite causes Economic Decline)
In the long run all input prices change in response to price level changes. In the short run, at least one input
price (often nominal wages) has not changed in response to price level changes.
LRPC at N’tl Rate of U, but not
related to % inflation. (Fig. 13)
Fig. 11 Ppc/Ppf
Fig. 13 SR & LR Phillips Curves
LRPC
YF2
YF1
Capital
Goods
Economic
Growth
•B
•C
A
YF1 YF2
Consumer Goods
Sally Dickson, Austin, TX
Fig. 12 LRAS (with AS/AD)
PL
LRAS1
LRAS2
Econ Growth
AS2
AS1
C
P2
A
P1
AD2
AD1
YF1
YF2
Q
GDPR (output/employ/income)
%∆PL = Inflation
Linkage: If interest rates↓ or if business T↓ →Ig↑ in short
run (points A to B). If Ig ↑ > depreciation → growth in
stock of capital → Ppc↑ (Fig. 11), LRAS↑ (Fig. 12).
6%
•B
3%
•C
A
4%
PC2
PC1
5%
% Unemployment
SR: A→B
wages don’t
respond yet to
%∆PL↑, %U↓
LR: B→C
wages↑
respond to
%∆PL↑→%U↑
to LRPC
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MACRO CUE CARD QUIZ
1. _____________________
Who conducts Fiscal Policy?
2. ____________________(1)
What are the two tools of Fiscal Policy?
____________________(2)
3. ____________________
Does Fiscal Policy aim to shift AS, AD, or both?
4. ____________________
Inflationary problems require which type of
Fiscal Policy?
5. ____________________
Unemployment and recessionary problems
require which type of Fiscal Policy?
6. ____________________
If we have stagflation, where does AD cross AS?
7. ____________________
Does Fiscal Policy affect Demand or Supply of
Loanable Funds?
8. ____________________
What happens to the Price of Bonds when Interest Rates
increase?
9. ____________________
The effect on business borrowing that occurs when the
federal government borrows is called what?
10. ___________________(1)
Two reasons expansionary Fiscal Policy might cause
interest rates to rise are what?
___________________ (2)
11. ___________________
Who conducts Monetary Policy?
12. ___________________(1)
What are the three tools of Monetary Policy?
___________________(2)
___________________ (3)
13. ___________________
Does Monetary Policy mainly affect AS, AD, or both?
14. ___________________
If inflation is the problem, what type of Monetary
Policy is needed?
15. ___________________
If unemployment and recession are the problems,
what type of Monetary Policy is needed?
16. ___________________
Does Monetary Policy affect Demand or Supply of
Money?
17. ___________________
Which group makes Monetary Policy decisions?
18. ___________________
What happens if Excess Reserves increase in the
banking system?
Sally Dickson, Austin, TX
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19. ___________________
What happens to business investment if interest
rates increase?
20. ________________
Why does this (#19) happen?
21. ___________________
Why does Aggregate Demand decrease in this situation?
(#19-20)
22. ___________________
If real GDP in the US increases, how does this affect US
imports?
23. ___________________
Why? (see #22)
24. ___________________
What happens to US imports from China if they experience
inflation?
25. ___________________
Why? (see #24)
26. ___________________(1)
27. ___________________(2)
If real interest rates in Europe rose relative to ours, what
would happen to the (1) supply of US dollars and (2)
demand for US dollars in the foreign exchange markets?
28. ___________________
Why do both curves shift? (see #26-27)
29. ___________________
Interpret this script into plain English: ¥P/$↑.
30. ___________________(1)
What are two ways to show “economic growth” on graphs?
31. ___________________(2)
32. ___________________
If investment in real capital declines significantly in the
short run, what will happen to the “stock of capital” in the
long run?
33. ___________________
To what do the words “stock of capital” refer?
34. ___________________
Looking at the graph, how do we know that the long run
Phillip’s Curve is not related to inflation?
35. ___________________
Is the short run Phillips curve related most to the short run
Aggregate Supply curve or the Aggregate Demand Curve?
36. ___________________
Are points on the short run Phillips curve related most to
short run AS or AD?
37. ___________________
Why might nominal wages not respond to a changing
inflation rate in the short run?
38. ___________________
What is another name one might give to the 5%
Unemployment of the Long Run Phillip’s Curve?
Sally Dickson, Austin, TX
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